Regressive revenue sourcing by local governments

Abstract

Emerging work in fiscal sociology examines the intersection of race/ethnicity, inequality and taxation, and suggests that localities are increasingly turning to nontax alternatives such as fines, fees and forfeitures to fill revenue gaps and service demands. These revenue sources are regressive and discriminatory as they disproportionately affect low-income racially/ethnically minoritised groups. We assess the extent to which local municipalities in California are more dependent on regressive nontax revenue sources, and if increases are correlated with a city’s racial/ethnic composition. We use fixed-effects estimators on panel fiscal data from the California State Controller Office’s Cities Annual Reports between 2002 and 2016 for our analysis. We further exploit our time period to determine how fiscal crises like the Great Recession compound race/ethnicity-driven finance disparities. Our results suggest the proportion of Latinx/Hispanic in a city’s population is positively and statistically associated with an increase in a city’s reliance on fines, fees and forfeitures. These results suggest concerns of discriminatory and regressive revenue sourcing by local governments that further perpetuate racial inequality and poverty. In aggregate, relative to other years in our analysis, the growth rate of fines, fees and forfeitures as a portion of total own-source revenue saw higher increases during the Great Recession, a time of heightened financial insecurity among low-income, Latinx/Hispanic and Black households.

Forgotten but not gone: A multi-state analysis of modern-day debt imprisonment

“…More narrowly, researchers have also examined two important potential rationales for the expansive use of fines and fees: first, that fines and fees are a deterrent to future crime; and second, that fines and fees are a kind of "reverse welfare" used to finance local and municipal governments [26][27][28][29]. The use of fines and fees as an alternative source of revenue, in particular, has been the subject of significant attention, with a number of studies finding that local governments rely more on fines and fees in times of financial distress [30,31]. Importantly, previous work suggests that the empirical basis for both the "deterrence" and "alternative revenue source" rationales for levying heavy fines and fees are weak.…”